Bob Evans: Turning Around or Running in Place?

As home-cookin' chain Bob Evans Farms (NASDAQ: BOBE  ) continues its companywide renovation, profitability suffers. The company reported lower earnings on Wednesday to an unenthused Wall Street, and the stock sank more than 5%. Looking ahead, things weren't much brighter as management sees costs rising and hurting operating income. Of course, these are largely short-term issues that do not speak to the long-term viability of the company. Bob Evans has an impressive footprint as an interstate staple and shopping center parking lot inhabitant. Will the company's refresh jump-start sales in the foreseeable future?

Slim pickin's
Bob Evans Farms hauled in $0.36 per share this quarter -- nearly $0.20 per share less than the average analyst estimate and a 34% year-over-year decline from last year's fiscal second quarter. Top-line sales actually posted a positive gain, though only by 1% to $332.6 million. Analysts were looking for another $7 million, roughly.

Bob Evans operates in two segments (it used to be three, but they have sold off the Mimi's Cafe brand) -- restaurants and BEF Foods (a wholesaler). The restaurants saw sales decrease 2.4% to $240.5 million, with a 1.9% drop in same-store sales. Management did note, however, that part of the pressure on comps came from the fact the stores were closed from time to time due to the renovations.

BEF Food actually did quite well, with sales up more than 10% to $92.1 million. A favorable mix and increased pounds sold led the gains. Sadly, those top-line gains were almost wiped off the map by increased supplies and sow costs. BEF adjusted operating income came in at just $0.6 million.

Looking ahead, the company chopped off the high end of previously issued guidance in favor of more conservative figures. Including a $0.09-to-$0.11-per-share repurchase benefit, the company is expecting $2.60 to $2.65 in full-year EPS. Same-store sales are projected to be no more than 1%.

Turnaround in progress?
BEF Foods seems to be growing nicely, with fiscal 2014 sales pegged at $380 million to $400 million. Input costs are killing its profitability, but that is likely of a short-term nature.

Bob Evans restaurants, on the other hand, need more time to prove that the renovations will boost the weak same-store sales growth. With the sizable investment going into the stores along with sacrificed business due to closures, management has put a lot of faith into the Farm Fresh Refresh initiative.

The top-line growth suggests brighter days ahead for Bob Evans Farms, but there are too many elements yet to be seen before one can determine the success of the company's turnaround efforts.

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